Deck 9: Money Is for Lunatics: Demanders and Suppliers of Money

Question 1

When the interest rate falls, the

A) quantity demanded of money decreases.
B) quantity demanded of money increases.
C) opportunity cost of holding money increases.
D) demand for money decreases.
E) demand for money increases.

Answer 1

quantity demanded of money increases.

Question 2

When average prices rise,

A) there is movement up along the money demand curve.
B) there is movement down along the money demand curve.
C) the opportunity cost of holding money decreases.
D) the money demand curve shifts leftward.
E) the money demand curve shifts rightward.

Answer 2

the money demand curve shifts rightward.

Question 3

When real GDP decreases,

A) there is movement up along the money demand curve.
B) there is movement down along the money demand curve.
C) the opportunity cost of holding money decreases.
D) the money demand curve shifts leftward.
E) the money demand curve shifts rightward.

Answer 3

the money demand curve shifts leftward.

Question 4

As a time machine for moving purchasing power from the present to the future, money functions as a

A) medium of value.
B) medium of exchange.
C) store of exchange.
D) store of value.
E) unit of account.

Question 5

When average prices fall,

A) there is movement up along the money demand curve.
B) there is movement down along the money demand curve.
C) the opportunity cost of holding money decreases.
D) the money demand curve shifts leftward.
E) the money demand curve shifts rightward.

Question 6

When the interest rate falls,

A) there is movement up along the money demand curve.
B) there is movement down along the money demand curve.
C) the opportunity cost of holding money increases.
D) the money demand curve shifts leftward.
E) the money demand curve shifts rightward.

Question 7

When average prices rise, the

A) quantity demanded of money decreases.
B) quantity demanded of money increases.
C) purchasing power of money decreases.
D) quantity of money supplied increases.
E) quantity of money supplied decreases.

Question 8

Holding money to reduce uncertainty makes sense in

A) Keynes' explanation of money as a unit of account.
B) Say's explanation of money as a store of value.
C) Say's explanation of money as a medium of exchange.
D) Keynes' explanation of money as a store of value.
E) Say's explanation of money as a unit of account.

Question 9

A double coincidence of wants requires

A) two buyers each wanting what the other has.
B) a buyer and a seller wanting the same thing.
C) two buyers who want the same thing.
D) two sellers who want the same thing.
E) one buyer who wants two things.

Question 10

In a world where Say's Law always holds true, which function of money seems crazy?

A) medium of value
B) medium of exchange
C) store of value
D) store of exchange
E) unit of account

Question 11

A barter economy has a problem known as

A) the mismatch between aggregate supply and aggregate demand.
B) fundamental uncertainty about the future.
C) scarcity.
D) mutually beneficial trade.
E) the double coincidence of wants.

Question 12

When real GDP decreases, the

A) quantity demanded of money decreases.
B) quantity demanded of money increases.
C) opportunity cost of holding money decreases.
D) demand for money decreases.
E) demand for money increases.

Question 13

When average prices rise, the

A) quantity demanded of money decreases.
B) quantity demanded of money increases.
C) purchasing power of money increases.
D) demand for money increases.
E) demand for money decreases.

Question 14

Which is a recognized function of money?

A) unit of exchange
B) medium of store
C) store of exchange
D) unit of account
E) medium of value

Question 15

The law of demand for money says

A) supply creates its own demand.
B) as the price of money rises, the quantity of money demanded decreases.
C) as the price of money rises, money demand decreases.
D) as the price level rises, the quantity of money demanded decreases.
E) as the price level rises, money demand decreases.

Question 16

In a world where Say's Law always holds true, which function(s) of money still make sense - are not crazy?

A) unit of account and store of value
B) unit of account and medium of exchange
C) medium of exchange and store of value
D) store of value only
E) medium of exchange only

Question 17

When average prices fall, the

A) quantity demanded of money decreases.
B) quantity demanded of money increases.
C) purchasing power of money decreases.
D) demand for money increases.
E) demand for money decreases.

Question 18

Bonds offer a(n)

A) uncertain stream of payments and a fixed time period.
B) uncertain stream of payments and a fixed price.
C) fixed stream of payments and a fixed time period.
D) uncertain stream of payments and an uncertain price.
E) fixed stream of payments and an uncertain price.

Question 19

The law of demand for money says

A) supply creates its own demand.
B) as the interest rate rises, the quantity of money demanded decreases.
C) as the interest rate rises, money demand decreases.
D) as the price level rises, the quantity of money demanded decreases.
E) as the price level rises, money demand decreases.

Question 20

An rise in interest rates causes a(n)

A) decrease in the quantity demanded of money.
B) decrease in the opportunity cost of holding money.
C) decrease in cost of borrowing money.
D) increase in the demand for money.
E) decrease in the demand for money.

Question 21

The opportunity cost of holding money is liquidity.

Question 22

Liquidity is the opportunity cost of holding bonds.

Question 23

As a unit of account, money allows you to easily see the relative prices of all products and services.

Question 24

Liquidity is the

A) opportunity cost of holding bonds.
B) ease of converting money into bonds.
C) price of money.
D) opportunity cost of holding money.
E) state of being sober.

Question 25

When Vladimir uses money to buy bonds, his liquidity

A) decreases and he gives up interest.
B) increases and he gives up interest.
C) decreases and he gains interest.
D) increases and he gains interest.
E) and interest do not change.

Question 26

Bonds pay interest and provide liquidity.

Question 27

The interest rate is the opportunity cost of holding money.

Question 28

An increase in real GDP increases the

A) demand for money.
B) supply of money.
C) velocity of money.
D) quantity of money demanded.
E) quantity of money supplied.

Question 29

The opportunity cost of holding bonds is interest.

Question 30

J.B. Say and J.M. Keynes disagree about money's role as a unit of account.

Question 31

Liquidity is the opportunity cost of holding money.

Question 32

On which function of money do J.B. Say and J.M. Keynes disagree?

A) unit of value
B) medium of exchange
C) unit of account
D) store of value
E) liquidity

Question 33

When Vladimir sells bonds and gets money, his liquidity

A) decreases and he gives up interest.
B) increases and he gives up interest.
C) decreases and he gains interest.
D) increases and he gains interest.
E) and interest do not change.

Question 34

Bonds are the most important type of interest-bearing asset in the world.

Question 35

J.M. Keynes believes people hold money as protection against uncertainty.

Question 36

Money can be anything, as long as it is acceptable as a means of paying for products and services.

Question 37

Liquidity is the

A) opportunity cost of holding money.
B) ease of converting assets into the economy's medium of exchange.
C) price of money.
D) ease of converting money into bonds.
E) state of being drunk.

Question 38

The opportunity cost of holding bonds is liquidity.

Question 39

In a barter economy with four products there are ________ unique relative prices.

A) 16
B) 6
C) 4
D) 8
E) 12

Question 40

An decrease in real GDP decreases the

A) demand for money.
B) supply of money.
C) velocity of money.
D) quantity of money demanded.
E) quantity of money supplied.

Question 41

When the price level rises, the demand for money decreases.

Question 42

When Navdeep transfers $1,000 from her savings account to her chequing account,

A) M1+ increases and M2+ decreases.
B) M1+ increases and M2+ is unchanged.
C) M1+ increases and M2+ increases.
D) M1+ is unchanged and M2+ decreases.
E) M1+ is unchanged and M2+ is unchanged.

Question 43

In the simple examples about the demand for money, people hold wealth either as bonds or money.

Question 44

When the interest rate falls,

A) the quantity of money supplied increases.
B) the supply of money increases.
C) the quantity of money supplied decreases.
D) the supply of money decreases.
E) none of the above are true.

Question 45

When interest rates fall, the demand for money increases.

Question 46

It is always a smart choice to hold your wealth in the form of interest-bearing bonds.

Question 47

When the interest rate falls,

A) the quantity of money supplied increases.
B) the supply of money curves shifts rightward.
C) the quantity of money supplied decreases.
D) the supply of money curve shifts leftward.
E) none of the above are true.

Question 48

When interest rates fall, the demand curve for money shifts rightward.

Question 49

A bond has fixed payments and a variable market price.

Question 50

If the price level falls by 10 percent and real GDP falls by 10 percent, the demand for money will be unchanged.

Question 51

A VISA credit card is

A) deposit money.
B) fiat money.
C) not money.
D) convertible paper money.
E) commodity money.

Question 52

When Komal gathers up all of her loose change and deposits it in her chequing account, the immediate effect is

A) both M1+ and M2+ increase.
B) M1+ increases and M2+ is unchanged.
C) M2+ increases and M1+ is unchanged.
D) both M1+ and M2+ are unchanged.
E) both M1+ and M2+ decrease.

Question 53

The law of demand for money works as long as average prices and real GDP do not change.

Question 54

A bond is a financial asset that offers fixed payments over an uncertain time period.

Question 55

If the price level falls by 10 percent and real GDP increases by 10 percent, then the demand for money will likely be unchanged.

Question 56

When the price level falls, the demand for money decreases.

Question 57

People hold all their wealth in stocks and bonds only.

Question 58

When interest rates fall, the demand curve for money shifts leftward.

Question 59

When the price level rises, the demand curve for money shifts leftward.

Question 60

When the price level falls, the demand curve for money shifts leftward.

Question 61

Reserves held by Canadian banks represent ________ percent of the value of all demand deposits.

A) less than 1
B) 1
C) 5
D) 10
E) more than 10

Question 62

Canadian currency today is

A) credit money.
B) deposit money.
C) convertible paper money.
D) commodity money.
E) fiat money.

Question 63

Most money today is

A) credit money.
B) deposit money.
C) convertible paper money.
D) commodity money.
E) fiat money.

Question 64

There is a tradeoff in any banking system between

A) M1+ and M2+.
B) making more high risk loans and earning lower profits.
C) the supply of money and the demand for money.
D) profits and collateral.
E) holding a larger fraction of reserves and earning lower profits.

Question 65

Debit cards are an example of deposit money.

Question 66

The Bank of Canada preserves the stability of the financial system by

A) serving as a lender of last resort.
B) issuing currency.
C) acting as banker to the government.
D) managing the money supply.
E) holding reserves of foreign currency.

Question 67

Which is not a role of the Bank of Canada?

A) conducting monetary policy
B) issuing currency
C) acting as banker to the chartered banks
D) acting as banker to the government
E) printing currency

Question 68

A debit card is

A) deposit money.
B) not money.
C) convertible paper money.
D) commodity money.
E) fiat money.

Question 69

Last week Clinton paid off $10,000 on his student loan. As a result,

A) both M1+ and M2+ increased.
B) the money supply was not affected.
C) M1+ increased but M2+ decreased.
D) the money supply decreased.
E) the money supply increased.

Question 70

By making loans to banks that are short of funds because borrowers went bankrupt, the Bank of Canada is

A) issuing currency.
B) serving as a lender of last resort.
C) acting as banker to the government.
D) managing the money supply.
E) conducting monetary policy.

Question 71

After winning $100 on a trip to Las Vegas, Hugo returns to Canada and deposits $60 in his savings account and $40 in his chequing account. The immediate effect is

A) M1+ increases by $60.
B) M1+ increases by $100.
C) M2+ is unchanged.
D) M1+ is unchanged.
E) M2+ increases by $100.

Question 72

Useful commodity money has the qualities of being easy to carry, to measure, and to divide into fractions. Which function of money is not affected by these qualities?

A) medium of value
B) medium of exchange
C) store of exchange
D) store of value
E) unit of account

Question 73

Suppose you deposit $2,000 cash in your bank. The bank desires to hold 20 percent of all deposits as reserves. What amount of new loans will your bank create immediately after you make the deposit?

A) $400.
B) $8,000.
C) $1,600.
D) $2,000.
E) $10,000.

Question 74

Canadian dollar bills used to be convertible into gold, but now are valuable simply because the government says they are.

Question 75

Playing card money in 17th century New France is an example of fiat money.

Question 76

A bank run

A) can happen when the likelihood of one depositor asking for her money is not influenced by other depositors asking for their money.
B) occurs when many customers want to repay their loans at the same time.
C) occurs when many customers want to take out new loans at the same time.
D) can happen when the likelihood of one depositor asking for her money is influenced by other depositors asking for their money.
E) is the Scotiabank Marathon.

Question 77

Commodity money has no alternative uses.

Question 78

Playing card money in 17th century New France is an example of convertible paper money.

Question 79

When cash is deposited in a chartered bank, the bank makes new loans. This,

A) increases currency in circulation.
B) has no effect on currency in circulation.
C) increases M1+.
D) decreases M1+.
E) has no effect on M1+.

Question 80

Canadian dollar bills used to be convertible into gold, but now are only convertible into silver.